Asia's factory output expands as firms stockpile buffers over Iran war risks

Asia’s manufacturing sector expanded in May as firms built stockpiles to mitigate risks from the escalating Middle East conflict, according to private surveys released Monday. The war between Israel and Iran has strained global energy supplies and disrupted trade routes like the Strait of Hormuz, prompting manufacturers to secure supplies ahead of potential shortages. South Korea’s factory activity hit its fastest pace in five years, with a Purchasing Managers’ Index (PMI) of 54.8, up from 53.6 in April, as AI-driven demand boosted exports. The country’s exports grew at their strongest annual rate in over four decades, fueled by record chip sales to support AI investments in the U.S. and China. ING analysts noted that both markets are driving demand for South Korea’s goods, reinforcing factory resilience despite energy shocks. Japan’s PMI stood at 54.5, slightly slower than April’s four-year high but still indicating expansion, while input costs rose sharply due to higher raw material prices linked to the conflict. China’s private-sector PMI fell marginally to 51.8 but remained above the 50 threshold, signaling growth, though official data showed factory activity stalled as new orders contracted. Vietnam’s PMI climbed to 52.8, and Taiwan’s reached 56.1, reflecting broader regional recovery despite cost pressures. Economists attributed the expansion partly to stockpiling by manufacturers and clients to avoid shortages and price risks. Annabel Fiddes of S&P Global Market Intelligence noted that companies were prioritizing supply security amid geopolitical tensions. Meanwhile, India’s manufacturing sector expanded at its fastest pace in three months, with a PMI of 55.0, though cost pressures remained intense. The Philippines also saw factory activity rebound, with its PMI rising to 50.8 from 48.3 in April.